June 25, 2017

The Dangers of the New Trade Secrets Acts

First, I want to state how thrilled I am to be joining the great group here at CITP. Every CITP scholar that I’ve gotten to know over the past several years have become friends and influenced my work in areas ranging from voting machine code access to international lawmaking processes. I’m delighted to be a part of CITP’s dynamic team and environment and look forward to an exciting year. Now, on to business.

Congress is actively considering legislative responses to increased foreign cyber-espionage, driven by the perception that theft is increasing both in scale and in severity. Two bills – the “Defend Trade Secrets Act of 2014” (“DTSA“) and the “Trade Secrets Protection Act of 2014” (“TSPA“) – are the latest attempts at legislating in this area. The bills both create a new private cause of action under the Economic Espionage Act (“EEA”) for theft of commercially-valuable secret information.

Currently, trade secret misappropriation is a federal crime under the EEA, but trade secret owners can seek civil remedies only in state courts, under state laws. The theory underlying the Acts is that a private cause of action under the EEA will be an effective weapon against foreign cyber-espionage. Current law, so the argument goes, is ineffective in combating cyber-espionage.

Unfortunately, the bi-partisan sponsors of the Acts have gotten this one wrong. In reality, the Acts will create or exacerbate many existing legal problems, yet solve none. As such, Sharon Sandeen and I authored the linked letter in opposition to the sponsors of the Acts and Congress, which has been signed by 31 United States legal academics. While acknowledging that the United States needs to increase protection against cyber-espionage, we assert that, in sum, the Acts should be rejected for five primary reasons:

  1. Effective and uniform state law already exists. The Uniform Trade Secrets Act (“UTSA”) has been adopted by 47 of the 50 states, and state trade secret law has developed through over 100 years of case law. State trade secret law is well-established and substantially uniform. The Acts would undermine this uniformity for no perceivable benefit.
  2. Weakened uniformity, as well as parallel, redundant, and damaging law. Because Congress’s power is limited by the Commerce Clause, the Acts only apply the new cause of action to trade secrets “related to a product or service used in or intended for use in, interstate or foreign commerce,” making the scope of the proposed laws unclear and unsettled. Of significant concern is that the Acts include provisions concerning preservation of evidence and seizure of property that overlap with the provisions already made in these areas by the Federal Rules of Civil Procedure. Adding new federal law in this area will lead to confusion. The Acts seek to remedy a perceived problem of varying state law, but in reality will decrease the uniformity of trade secret law and will make legal results less predictable.
  3. Anti-competitive results. Under the Acts, injunctions are not limited explicitly to the critical period of lead-time advantage, meaning that they could be extended interminably. In addition, the seizure provisions of the Acts permit seizures to be made before the defendant has notice or an opportunity to be heard. These provisions seem eerily similar to provisions in the failed Stop Online Piracy Act (SOPA) and herald an unprecedented level of judicial secrecy.
  4. Increased risk of accidental disclosure of trade secrets. The jurisdictional confusion noted above makes motions to dismiss for lack of subject matter jurisdiction more likely, requiring plaintiff disclosures of trade secrets at earlier stages in the life of a case. Though these disclosures are confidential, they raise the risk of accidental, wider disclosures (as evidenced by the common plaintiff strategy during litigation today of delaying the disclosure of trade secrets to the court as long as possible). Again, no countervailing benefit ameliorates this risk.
  5. Negative ancillary impacts on access to information, collaboration among businesses, and mobility of labor. Labeling information as a trade secret can serve as a powerful excuse for withholding critical information from the public and regulators (see, for example, the voting machine code mentioned in my introduction). The existence of even a weak but new cause of action will have a chilling effect on the ability of governments to request trade secret information, and it will be an additional weapon for trade secret holders to wield in refusing to share such information with the public and even regulators. The threat of misappropriation lawsuits will also reduce business collaboration. Finally, unlike state law, the Acts do not protect employee mobility, a critical element in the continued growth and sustainability of an innovation economy.

We welcome your questions and responses. Please feel free to comment or to contact Sharon Sandeen () or me ().

Comments

  1. As a reporter who has been threatened a few times with trade-secret litigation, I do not look forward to even the remote prospect of being hauled into federal court.

  2. John Millington says:

    But, of course, this is balanced by the fact that by being able to use Federal Court to protect Church of Scientology trade secrets, America can more easily retain its religious competitive edge. Are the puny little state courts equipped to deal with German Thetan detection, Chinese Thetan countermeasures, or Brazilian Thetan education? I don’t think so!